Saving up for a down payment can be challenging for some home buyers, especially those who are trying to purchase their first home. It might sound simple to just borrow the money–but this is often not a good idea.

FHA and conventional loans don’t allow it

Few lenders will allow borrowers to use a personal loan to fund their down payment. A down payment is a sign that you are financially stable and can afford the monthly payments for your mortgage. Taking out a loan instead of using your own money is a red flag to lenders that makes you look risky.

In fact, even if you can find a lender who will make an exception, you still won’t qualify for many types of loans. For example, both Fannie Mae and Freddie Mac don’t allow personal loans for down payments on any conforming loans. FHA loans don’t allow it, either.

It’s risky

Personal loans usually carry much higher interest rates than any type of mortgage, which means that on top of your monthly mortgage payment, you’d need to simultaneously pay off a separate high-interest loan. This strategy increases your debt-to-income ratio, can lower your credit score, limits the type of mortgages you can apply for, potentially raises the interest rate on your mortgage, and ultimately, puts your financial household in a risky situation that increases the likelihood you will default on your loan.

What about family or friends?

Don’t be tempted to try an “off the books” loan from family or friends. Borrowers are required to prove the source of their down payment with records and bank statements and making a false statement in a loan application is illegal. Always tell the truth about the source of your down payment.

It’s not necessary

The good news is that you often don’t need to take out a personal loan for your down payment because there are loan programs available that require small (even, no) down payments. Competitive rates are available for borrowers who can put as little as 3% down on their house.

What to do when you don’t have a down payment?

The best thing to do when you are ready to buy a home but you don’t think you have a sufficient down payment is to speak with a mortgage broker. A mortgage broker will be able to look at your unique financial situation and suggest the smartest course of action moving forward. Mortgage brokers are familiar with all the low or no down payment loan options and can discuss the pros and cons of each program to help you make the right choice.

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